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Kimmel_4e_2000_and_2001_chapter_2_student_version

Kimmel_4e_2000_and_2001_chapter_2_student_version - 2 A...

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2-1 A FURTHER LOOK AT FINANCIAL STATEMENTS Accounting, Fourth Edition 2
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2-2 1. Identify the sections of a classified balance sheet. 2. Identify and compute ratios for analyzing a company’s profitability. 3. Explain the relationship between a retained earnings statement and a statement of stockholders’ equity. 4. Identify and compute ratios for analyzing a company’s liquidity and solvency using a balance sheet. 5. Use the statement of cash flows to evaluate solvency. 6. Explain the meaning of generally accepted accounting principles. 7. Discuss financial reporting concepts. Study Objectives
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2-3 The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. u Presents a snapshot at a point in time . u To improve understanding, companies group similar assets and similar liabilities together. Illustration 2-1 Standard Classifications
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2-4 Illustration 2-2 The Classified Balance Sheet SO 1
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2-5 Illustration 2-2 The Classified Balance Sheet SO 1
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2-6 The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. u Assets that a company expects to convert to cash or use up within one year or the operating cycle , whichever is longer . u Current Assets include: u Cash u Short-term Investments u Accounts Receivable u Notes Receivable u Inventory u Supplies u Prepaid Expenses Current Assets
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2-7 The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. Companies list current asset accounts in the order they expect to convert them into cash. Current Assets Illustration 2-3
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2-8 The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. u Investments in stocks and bonds of other companies that are held for more than one year. u Investments in long-term assets such as land or buildings not currently being used in operating activities. Long-Term Investments Illustration 2-4
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2-9 Property, Plant, and Equipment The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. u Long useful lives . u Currently used in operations. u Depreciation - allocating the cost of assets to a number of years. u Example: The Shoe Boxx purchased a $5,000 computer for use in the business. The Shoe Boxx estimates it will use the computer over the next 5 years. The Shoe Boxx will allocate $1,000 to expense each year for use of the computer. u Accumulated depreciation - total amount of depreciation expensed thus far in the asset’s life.
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2-10 The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. Illustration 2-5 Property, Plant, and Equipment
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2-11 Intangible Assets The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. u Assets that do not have physical substance.
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